Oil Prices Edge Lower as Market Forces Converge

Crude oil retreated sharply on Friday following a three-day rally, as traders shifted toward profit-taking and multiple macroeconomic headwinds intensified. WTI crude for March delivery fell $0.22, or 0.34%, settling at $65.20 per barrel. The pullback reflects a combination of technical correction, strengthening U.S. currency, and escalating geopolitical uncertainties that collectively pressured energy markets.

Technical Correction Follows Strong Rally

After posting substantial gains over three consecutive trading days, oil markets entered consolidation mode as investors secured profits. This natural retracement after a rapid advance is a common market pattern, particularly when upside momentum needs validation from fundamentals. The profit-taking pressure created headwinds that overwhelmed supporting factors in the energy complex.

Dollar Strength Dampens Commodity Appeal

The U.S. Dollar Index climbed to 96.75, gaining 0.49%, which typically constrains crude demand. Since oil trades in dollars globally, a stronger greenback makes petroleum more expensive for non-U.S. buyers, dampening purchasing appetite across energy markets. This inverse relationship between currency strength and commodity prices has been a persistent dynamic throughout the session.

Geopolitical Tensions Reshape Energy Landscape

Middle Eastern tensions escalated as Iran announced plans to conduct live-fire military drills near the Strait of Hormuz, a critical chokepoint for global oil transit. Despite Trump administration warnings and ongoing nuclear negotiations, Iran maintained its firm stance. Simultaneously, recent U.S. policy shifts toward Venezuela’s oil sector created mixed signals—the administration eased some sanctions to facilitate crude sales, while the new Venezuelan leadership amended hydrocarbon policies favoring private sector involvement in production and reserves management.

Supply Data and International Demand Dynamics

U.S. commercial crude inventories decreased by 2.3 million barrels for the week ending January 23, signaling continued demand. However, China’s energy appetite remains the dominant wildcard. Last year, China’s crude imports reached an all-time high near 11.55 million barrels per day, with December 2025 imports reported at 2.67 million barrels daily—a notable jump from November’s 1.88 million barrels. This surge reflects China’s strategic positioning amid broader energy transitions.

Looking Ahead: Navigating Multiple Risk Layers

Oil prices continue to edge between competing forces: technical rebalancing, currency dynamics, supply disruptions, and diplomatic uncertainties. The Federal Reserve leadership transition, with Kevin Warsh’s nomination as a higher-rate advocate, adds another layer of complexity to the outlook. As long as geopolitical flashpoints persist and macroeconomic conditions remain fluid, crude markets are likely to experience continued volatility around current support and resistance levels.